Yes, Turnkey Rentals CAN Be a Solid Investment Choice: Here Are the Numbers to Prove It

I mean seriously, folks. You either love them or hate them. Am I right? You know what I’m talking about!

There are many mixed emotions regarding turnkeys, and people aren’t afraid to express how they feel about them. It’s true, they may not be the right fit for a lot of investors, and it’s also true that may just be the perfect fit for other investors. At the end of the day, it really all comes down to what is best for you and your family, and of course whether or not they are going to make you some cash flow! Cash flow is the name of the game here, and there are no other reasons you should be investing in turnkey properties if cash flow is not your #1 priority.

I decided a few years ago after continually being outbid in my local market for cash flowing properties that it was time to shift gears and start investing elsewhere. This was not an easy decision by any means, and it took me countless hours of research and sleepless nights before I ever pulled the trigger on my first out-of-state turnkey property.

I’m happy to say that as of right now, I am in the process of purchasing my fourth turnkey rental property. I have been successful so far with purchasing these in part because I have a very strict criteria for who I will buy from as well as what property I will buy. There are many bad turnkey sellers out there and even more bad turnkey properties. How to avoid a bad turnkey seller merits its own post, which I will write about in the future, so stay tuned.

In today’s post I will show you the actual numbers on the three turnkey rental properties that I have bought so far. I know you love seeing real numbers, and this is why I am going to show you the good stuff.

Hey there! Screening tenants can be a tricky business, and this critical step can be the difference between profits and disaster. To help you with your real estate investing journey, feel free to download BiggerPockets’ complimentary Tenant Screening Guide and get the information you need to find great tenants.

Turnkey #1

Location: Indianapolis, IN (Irvington)Purchase Date: November 2014

As of today, rent has been paid on time in full every month, and I have paid a total of $162 in various expenses, including leak repair, loose cable repair, and a landlord registration fee. So far this turnkey property is performing well, and I am very happy with it.

Turnkey #2

As of today, rent has been paid in full and on time every month. We have had one unexpected plumbing issue, which cost me $230 to repair. This turnkey is only 7 months old, and although the plumbing issue was not expected, the property is still performing as calculated, and I am happy with this investment.

Turnkey #3

Location: Indianapolis, IN (Bates Hendricks)Purchase Date: May 2015

This turnkey is my newest one (not counting the one I am purchasing right now), and as of today, the rent has been paid on time and in full since day one. There have been zero repairs or issues.

Additional Info

Dates Purchased

As you can see the dates above, none of these turnkey properties are more then a year old, and you will never really be able to accurately gauge how they perform without long term data. As of now, all my turnkeys are performing as I originally calculated, and I am extremely happy with all of them.

Financing

All the properties above were purchased with 30-year conventional loans. The very first turnkey was purchased with a 20% down payment, while the others were purchased with a 25% down payment. This is due to a requirement that mandates you put down a minimum of 25% down payments on mortgages 5-10. I am now on my 6th mortgage and working on my 7th. It is very difficult to find a lender that is willing to give you up to 10 conventional loans at those kinds of rates and under $50k. They are a rare breed, but they are out there.

Purchase Price

All of these turnkey properties are within the $49k-67k purchase price. These are very affordable houses, and it is a very common assumption that houses within these price ranges fall in high crime areas. This of course varies per market, and it is extremely important you properly research any house you buy as well as the locale.

Because of my strict criteria, I have ensured that none of the properties above are in high crime areas, and all of them have had full rehabs. Finding properties with those kinds of returns with brand new rehabs in decent areas is not easy, trust me. I literally sifted through hundreds of properties and dealt with close to a dozen turnkey providers just to get the three above. Many of the turnkey providers out there sell junk, and it’s important to stay away from those guys if you want to be successful with purchasing turnkey rental properties.

Estimated Vacancy

Although turnkey companies will tell you that a 5% vacancy is normal, it is important you determine the actual vacancy yourself by verifying with other sources. The best way is to contact property management companies and find out directly from the source. I typically bump up my estimated vacancy, as I like to be conservative with my numbers.

Estimated Repairs/Maintenance

Same deal for this one: Turnkey companies will most likely give you a low 5% rate of maintenance. It is important you bump this number up to accommodate for unexpected issues and to make it a more realistic estimate for the long run. I like to use a minimum of 10% on all my properties.

If you decide to purchase a turnkey rental property, it is very important that you proceed with caution and do as much due diligence as you can on your seller and on the property in question. If you do not do this, then you are increasing your chances of failure — and nobody wants that.

Investors: What has your experience with turnkey rentals been?

Let us know with a comment!

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About Author

Alexander is on a mission to retire early and plans on doing so by investing in real estate. He is currently focused on buying out of state rental properties and blogs all about his journey on his blog Cash Flow Diaries

61 Comments

Hi Alexander,
Great post and amazing speed at which you’re picking up the properties. I’m investing in Indy myself and am on the fence about what to do, turnkey or not. Do you mind sharing the few companies you trust to work with that also regularly have inventory in your price range?
Thanks.

Thanks Jeb! I appreciate it. The faster I can build enough passive income, the faster I can retire so hopefully I won’t have to slow down anytime soon. Its very important that I keep plenty of cash reserves handy though at all times.

I’d rather not disclose who I have bought from publicly but feel free to send me a PM and we can discuss it.

Awesome. The maintenance number seems low for a used normal 3 bedroom and I see that you fixed that cost to rent %. The maintenance in Cali would be much more even with the good weather etc. How does monthly rent associate with the maintenance cost and is labor super cheap in Indy or? Thanks for sharing!

I hear ya. I am sure you have allocated accordingly. I was talking more in theory. Each property will have different cost and that is not always connected to how much the rent is. Say a $800 rental the cost could be 20% and a $2000 rental the cost could be 5%. The properties could have the same physical structures, 3/2s, but the $800 needed some trees trimmed and the water heater busted. I can understand the budgeting of a portion either way. When we get into tenant quality it is possible the $2000 tenant would have much less maintenance. At a certain higher levels this percentage amount is 100% disconnected. Each property varies for sure. Older structures even fully rehabbed can still need a good bit of maintenance. I have seen an advertised TK quad back east from the early 1900s and they allocated 5% – $40 per door. This obviously is total BS in reality. Your numbers are more realistic. Hopefully they are less. Good luck!

Yeah I know what you mean Matt. To be honest, at the end of the day know one can really predict what will happen with tenants or maintenance. The best practice is just to try and put up a conservative number in your estimates and hope it hits.

Sometimes it will perform better, sometimes it wont. Im crossing my fingers for the former. 😉

Very helpful article. Real math is a great way to see how investments stack up. Certainly maintenance costs will eventually increase but hopefully, so will rents over time. Appreciation is not great in IN but it has historically shown an upward trend, even a bit better than inflation over the last 5 years. Between cashflow and long-term appreciation you should be sitting pretty in a decade or 2! Nice work and thanks for sharing the numbers!!!

I appreciate the remarks. Appreciation is definitely not great in IN but when I bought these, I was not banking any appreciation. IF that does happen then great, but that would just be icing on the cake for me.

How do you plan to pay for CapEx? Is your CapEx in your maintenance number? 10% per month seems small to handle a roof replacement, water heater or other major items when the come…. and they eventually will come.

I’ve looked a turnkey for a while now and most providers fail to show CapEx in their projections. I think this can be very misleading. Even if a home has been completely renovated…. it will still have major CapEx costs at some point.

I should have wrote this in the article but I always carry a min of 3k cash per property on the side for any emergency/capex type issues however I only buy houses with brand new everything.

Brand new everything means the roof/HVAC (the most expensive items) should last about 15 years.

The 10% property maintenance I take out each month is to hold for future repairs/capex although you are correct. Even on a brand new rehab, 15 years from now, that number saved up would be close to 15k which would cover a new roof/hvac/water heater and all that however that leaves the margin slim for normal minor repairs that happen each year.

Im thinking on a fresh rehab, it might be better to change the estimated repairs/maint to 15% or 20% to accommodate that.

If I were to bump that number up to 15% per month, that would equate to $1485 per year. 15 years from now that would be $22,275 which sounds a lot better.

With that bump in projections, that would still leave me with a COC of 18% which I still love.

You did not indicate the size of the units above but I think you are way too low for your cap expense even at 15% (which you have as cap expense and maintenance). In cheaper areas than So Cal I would think that Cap expense would approach $200/month for a normal rental sized SFH. Note that the $200/month would be too low to cover my projected Cap Ex costs for rental sized SFHs in San Diego area.

There have been many posts on expected cap expenses and expected lifespan of the various elements. Everything last less long in most rental properties but it does vary with the quality of the tenant (Carpet last less than 10 years in a typical rental property, ditto interior paint).

@Ben Leybovich I missed the article you referenced when it came out and therefore just read it. I agree with your premise on the cheaper units being hard to profit because of the cap expense. The repair numbers will vary by location but I think my “approach $200/month” referenced above was probably low (fortunately I use $300 per unit for attached and $400 per unit for unattached in San Diego and believe (hope?) I am being conservative).

I have a duplex unit remodeled a year ago that just had a slab leak. The duplex has a single water feed that feeds both units (ugh!). Depending on the repair method chosen the cost will be $1825, $3000, or $4850). The $1825 is to jack hammer slab and to repair the leak; still uses all the old piping except for the new pipe to bypass the leak. The $3000 replaces all of the supply (both units) for the leak side (surprising this was a cold supply leak); So the hot water which is more corrosive than the cold water would still be using the old piping. The $4850 is to do all new supply on both units (i.e. hot and cold). This place had everything except for plumbing redone a year ago; apparently I should have done the plumbing.

Very inspiring article Alexander! One of my favorites on the subject since I can put myself in your shoes. Please keep writing as you continue on this path. I am trying to get some turn key properties myself, but we just spent all of our cash on our primary residence. Hoping to save enough for a down ASAP.

Thank you for the kind words. I will definitely continue writing about my experiences whether they are bad or good to keep people informed of what goes on out there int he turnkey world from a buyer’s perspective.

Feel free to connect with me reach out if you ever have any questions.

Thanks for sharing your numbers with your turnkeys. Your number are great and it looks like the investments will do well… however it also looks like you have not factored in Capital Expenditures (CapEx). You really need to be accruing monthly for CapEx by building up a reserve account separate from your maintenance account, otherwise, you aren’t seeing your true return on investment.

CapEx is a real expense and needs to be accounted for, otherwise when you replace a roof and realize four years of cash flow have been wiped out, you won’t think your investments are that great anymore. This goes for any investment, not just turnkeys.

Thanks for commenting. The numbers are great so far and you are 100% correct on capex. I should have included those in the spreadsheet. See my reply above, I touched base on my thoughts on that.

Albeit, my numbers above are merely projections of each investment. Obviously those numbers will change each and every year. At the end of the road, 20 years later, who knows what my final ROI would be on those but I would hope they are close to what I initially thought.

The ultimate goal is going to be use the passive income to retire and 15 years from now when all the mortgages are paid off and I am just collecting rents on all my houses, I will be in a good situation regardless.

Indy and KC are the only markets I found that fit all those to a tee and I only plan on investing there for now. My plan is go own at least 5 rentals in each of those cities before I look for a new city to invest in.

Thanks for commenting and feel free to reach out if you need additional info.

I was in a great mood with my turnkeys when they were “So far this tenant has payed on time monthly” so I sincerely hope you are enjoying the honeymoon. The real test comes when one or more are vacant at the same time. Nothing deflates the marriage of landlord to property more than a vacancy, especially when you are carrying a mortgage and utilities expenses every month.

You also have to factor in that your PM will likely take your first months rent as a finders fee for your new tenant after a vacancy. Fortunately, it looks like you are in a strong position with regards to purchase price and rental rates, so you will probably be fine.

I have enough cash reserves to handle multiple vacancies at the same time so I don’t think that will be a problem for me however if a vacancy takes much longer then expected to fill then that will cause some problems for me. Keeping my fingers crossed! Thanks for commenting!

Alexander. I appreciate your taking the time to write this article. I am glad that you have had good results. With all due respect you do not have enough experience to justify the title of your article. Less than a year of turnkey investing and you have never had to sell any them to see what you can recoup. At the minimum you need one year to get your first income tax return, but in reality it will be more than 10 years before you really know. There are a lot of market fluctuations that could come into play. I also notice you have nothing down for cap ex, like a new roof, digging up sewer lines, and new furnace or AC, water damage, etc. You have not had turn over costs and lease up fees from the management company, no evictions, no new carpeting and repainting, etc. Those are costs you WILL have but they have never been accounted for yet. If you take any 6 month or even one year time of my rental business it may look dam good or dam bad. One year alone had over $17,000 in sewer lines that needed dug up and replaced. My books looked like hell that year. The following year looked ok. It’s way to early to tell folks you can PROVE it was a good choice. I do like that you listed when you bought the properties so folks can see how short of a time you have owned them. I hope you do great with them and can update us in years to come.

Thanks Jerry! I appreciate the remarks. I completely agree with you, the title of the article you see was not what I had originally submitted actually. But I concur and this is why I specifically wrote in the post ” you will never really be able to accurately gauge how they perform without long term data”.

I am definitely expecting to have those kinds of issues with these properties in the future. Hopefully it won’t be until the far future after i can build plenty of reserves from the 10% per month repairs expense I am calculating. And I am crossing my fingers I wont have to deal with a 17k sewer bill. That is insane!

Alexander, thank you for your article. I am looking at Kansas City right now to do the same thing. Do you mind giving more specific details on how you did your due diligence? Who did you talk to/what information did you find reliable? Also, how remote are you from your properties? I’m in California, and investing across the country sight-unseen carries some risk. Traveling to see the properties will eat up the returns.

Jerry W., thank you for sharing your experience. Would love to hear more advice from you for newbies like me.

Hi Vanessa! For KC I contacted 5 different TK providers, interviewed all of them, only checked inventory from the ones that passed my interview questions. Then I narrowed the properties down to a few from the inventory lists, did individual research on the properties, confirmed numbers, then I pulled the trigger.

i also interviewed/vetted the PM that will be handling the property before all that.

Send me a PM and ill give you the questions I ask the companies or can give you additional details. And I currently live in Austin, TX so its pretty far from KC or Indy which is where I am buying. If travelling to your destination market is going to kill your returns then you are probably buying the wrong investment property. You should be able to find something with better numbers. I do recommend you go to your investment city though and meet the people you will be working with and check out the city/area of where you want to invest.

Congrats on the purchases. Estimated numbers are just that……estimated. No one knows the real numbers until years down the road. Looks like you’re looking for cash-flow to get off the rat race. At this pace, do you know roughly how many TK properties you have to own to replace your W-2? How many years do you guess it will take you to build this portfolio? At what stage are you planning on quitting your job?

Exactly! These are just my estimations today. Next year they will either be the same, better or worse. We’ll see but im obviously hoping for the best.

Yep cash flow is what I want because cash flow is going to allow me to live free, the way I was meant to live 😉

To be honest, I havent quite yet put a number on how many rentals I will need but right now I am thinking 15 to 20ish. My priorities could change in a year or two or am I may get into bigger MF. I dont know. For now, I will keep building cash flow.

But I will quit my job when I am making at least equal to what my job salary is. If all goes well, I really don’t see myself working 10 years from now. Hopefully sooner then that. I am in my mid 30s by the way.

Thanks for the comments. Indeed TK is not for everyone and people should take caution if they decide to go this route. There are plenty of horror stories out there from people who have failed at turnkey investing. I personally do not think I will be one of them but Ill keep my fingers crossed.

It’s easy to blame TK as a problem, even if the real problem is due diligence. TK is the logical extension of “having teams on the ground” that every investor says is critical. The only difference is it is one more layer removed. It’s the same question as “should I buy from a wholesaler or chase the leads for every deal myself?” Some people refuse to pay the extra for someone to find those deals, others value their time more and are happy that someone else did the grunt work. It’s the same argument for TK.
If I were to bother linking all the horror stories of “OMG I bought a pig and now xyz has happened” it would go on forever. Is the problem the houses? Or the due diligence? Or combinations? RE Investing is all about risk mitigation. One way to mitigate that risk is to find reputable, knowledgeable teams that either won’t buy those properties, or already have the teams and expertise to identify and handle the problems. TK is one way to achieve that. The only way? No. The best way? It depends.
TK isn’t for everyone, but it is a strategy that can work if done properly.

Alexander A.: Way to go, taking action!
Also, kudos to you for sharing your numbers and time frame. And, double kudos for responding positively to posts that are critical of your process and numbers, they are trying help – not just you but also follow up readers.

I too started Turn key investing this year and have purchased 3 turn key properties this year( April, July, and August). I am in California and have a more than full time job which pays reasonably enough but leaves little time for hands on learning.

My wife and I are in the first year being more aggressive with our investing and may be paying some dues yet, but so far feeling pretty good about it. We have flew out to interview the turn key PM and review their process/setup before the first purchase and after the third. We liked what we saw and were hearing the first time and in the second visit, generally liked the turn key operation is growing in the direction they had stated though it appears a little slower then anticipated.

Reading your post has inspired me to put together a comparison of the turn key investments vs the options trading we have been doing for the last year. Both investment strategies are new to us. Both have been better than bank CDs so far… at least at face value, we will have our first strategy and numbers talk with our recently engaged CPA.

Now to see if I can put this stuff together in an understandable posting.

I really appreciate the remarks and feedback. I love getting kudos! I agree with you and think that anyone who comments is either just trying to learn something or teach something so no matter what the comments are, I will read them and try and soak in and learn what I can. Definitely not claiming to be an expert at anything. Im just merely showing what I am doing at the moment with my investments.

Congrats to you for building your portfolio this year. It sounds like you are in aggressive growth mode which I love and the way you are doing it is the way to do it. Research, research, research!

I always thought IRR was more for big apartment building but to answer your question, no I have not done that. I need to read up on that still and see if it applies. I actually dont plan on ever selling my rental properties. The whole reason why I am doing it is for the cash flow so I can retire early. My investment strategies may change in the future of course but for now that is my line of thought on it.

I’m a newbie and certainly am learning more than I am teaching. I live in Indiana and have been investigating two markets for buy and holds as well as flips. I am struggling with making the numbers work for rentals. My goal is to have $200/month cash flow per unit. My model for buy and holds looks very similar to yours.

How did you come up with the property tax numbers? Indiana has a law that states taxes on rental property cannot exceed 2% of assessed value. Assessed value is determined by market prices. That being said, there have been issues with assessed vs. market value. I know the tax records are public record and are easily accessible and I have used that information in my calculations. In many cases there are homestead exemptions, mortgage exemptions, etc. that lower the tax rates for homeowners as opposed to investors. To not under estimate the taxes, I have been using 2% of my purchase price. I am curious to hear if any of this was used in your analysis.

The other area where my numbers differ from yours is in the CapEx, which has been discussed in a couple other responses. We don’t need to beat a dead horse with this one.

I hope you do well. It gives me confidence that I am on the right track. I am in the middle of closing my first buy and hold. I thought the numbers worked out, in meeting my $200 goal, but as I continue to analyze the numbers, they don’t look as good as I originally thought. CapEx is one area that I have increased since my original evaluation.

Thanks for reading and commenting. I appreciate it. For the property taxes, I am using the marion county tax assessor site and pulling actual numbers. That is pretty much the only way to do it as far as I know. You make a great point about the taxes going up in the future but in all the properties I have analyzed, none of them were ever assessed at “market value”. I dont base it off of “market price” but I suppose at some point in time, they may rise and weaken my numbers. Hopefully rents go up too!

I am not exactly sure how they assess those to be honest but what I do know is that the taxes there are dirt cheap compared to where I live in Austin.

Congrats on being in the middle of your closing, that is a huge deal and I hope it works out for you. If you really stop liking your deal and think you are getting into a bad investment though, dont be afraid to walk away. Its not too late. Yes you will lose some money now but you are possibly saving thousands down the road.

Thanks for sharing your relatively new experience in this article! The numbers really help paint the picture. I myself am in the process of making my very first TK purchase and like Vanessa mentioned above, am looking for any & all info on “due diligence”. I will PM you for that info as well.
The majority of my questions have been answered in the comments/replies above. But the one that I had left is: What is your take or plan with your cashflow? Saving as much of it as possible for the next down payment? Paying down your mortgage debts with extra (monthly) payments to take care of them faster? Another idea that I haven’t even thought of? Looking forward to hearing your take on this.

Got your email and I hope the info I provided helps. Keep in mind these numbers are projections and I had to go through at least 100 different turnkeys for sale before I picked just the right ones for me. It won’t be easy finding numbers like that based on my experience in searching around. I really really want to stay away from bad areas, high crime and crappy returns.

As for your cash flow question, all that money goes into a checking account I have and I let it build up so that eventually I can buy another one. I always keep at least 3k per property in that same account and I dont ever use any of that money unless its going back into investing with rental properties. Either to pay for maintenance items or repairs, all that good stuff or to buy more properties.

Especially for those of us newbies which are researching about RE options. This give us an idea on how things look in the beginning, and how things may change as investors live through their investments (thanks to those contributing comments and your positive feedback)…

Hi Isaac! Appreciate the feedback. I have a normal day job just like most people here. I work at a software company in the development dept. Its a great job, pays well but I just really really dislike working for people, waking up at the same time every day and going home at the same time every day. Its horrible! I am able to save money fast though from combining my day income with income from all my investments. I have 5 investment properties, only the last 3 were turnkey so I use the income from ALL those investments as well to save money faster. I dont buy any investments unless they cash flow from day 1.

With that being said, all I want to do is keep generating passive income so I can quit one day and live a FREE life! That is all I want and the whole purpose of what and how I am investing. Hopefully it works out for me!

Hi Alexander.
Great article. I plan on investing in turnkey properties myself, so it’s nice to have someone share their numbers and get some insight on how others go about doing it. I think it’s wise that you set aside 3k upfront for cap ex for each property, just in case something unexpected happens, and I plan on doing the same myself .
Personally I would also set aside 10% for cap ex each month, because at some point in the future you will need that extra money, at least that’s what I would do.
I hope everything turns out great.

great article and appreciate your transparency in showing the numbers. I believe TK can always have a place in someone portfolio, be it 10% or 50%, TK investing in other markets can prove to be profitable. Thank you for sharing — what are your thoughts in the Dallas or Houston TK market?